(Reuters) - JPMorgan Chase & Co has reached a tentative $13 billion deal with the U.S. Justice Department and other government agencies to settle investigations into bad mortgage loans the bank sold to investors before the financial crisis, a source familiar with the talks said on Saturday.
The tentative deal, the largest ever between the U.S. government and a single company, does not release the bank from criminal liability for some of the mortgages it packaged into bonds and sold to investors.
That had been a major sticking point in the discussions, but the government refused to budge on that issue and JPMorgan felt it had no choice but to give in, according to a second source. Until recently, the most that JPMorgan was willing to pay was closer to $11 billion.
Despite two years of corrosive austerity measures since it needed an international financial rescue, Portugal’s prime minister told his country Sunday to brace for even harder times after a court ruling forced his government to find more savings through steep spending cuts.
Pedro Passos Coelho said in a somber televised address to the nation that his center-right government must slash public services because of a Constitutional Court decision to disallow some of its latest tax hikes.
A new crackdown on public spending will focus on social security, education, health services and state-run companies, he said. That is likely to bring more layoffs as Portugal scrambles to restore its financial health after it needed a 78 billion euro ($101 billion) bailout in 2011.
“Today, we are still not out of the financial emergency which placed us in this painful crisis,” Passos Coelho said.
Portugal’s worsening problems threaten to reignite the eurozone’s financial crisis not long after Cyprus became the fifth member of the 17-nation bloc to require rescue.
The Portuguese economy contracted 3.2 percent last year and is forecast to shrink 2.3 percent in 2013 for a third straight year of recession. The unemployment rate, currently at a record 17.5 percent, is forecast to climb to 18.5 percent in 2014.
It is a crisis looming on the horizon. Indeed, the possibility of massive defaults of student loans may be this decade’s financial crisis. Some say it would rival the housing bubble and the dot.com bubble in terms of its effect on the national economy.
That’s a major fear for Lindsey Burke, the Will Skillman Fellow in Education Policy at the Heritage Foundation in Washington, D.C. Student loan debt now exceeds credit card debt, and too often, students are financing degrees that don’t pay off in the long run.
Burke also noted that online courses are putting tremendous pressure on the traditional university system. Access to information is becoming radically cheaper, while the cost of college continues to increase at unsustainable rates. She said this will cause the bubble to burst.
But not everyone is ready to sound the alarm. Neal P. McCluskey, the Associate Director, Center for Educational Freedom at the Cato Institute, Washington D.C. feels there’s much ado about nothing and minimized the danger of the potential economic drain.
“I’m not sure that there is good evidence that this decade’s financial crisis will be huge defaults on college loans,” McCluskey said.
McCluskey believes that it costs far too much to attend college. He attributes this, in large part, to the federal student aid that enables colleges to increase their tuition rates in excess of the inflation rate.
“But average debt for graduates with debt is around $27,000, which is small compared to mortgage debt,” McCluskey said. “For students going to good schools and pursuing in-demand degrees, it should not be hard to pay off.”
If you want to know how much worse our economic recovery could be, check out Scott Walker’s austerity-rocked Wisconsin — which has gone from 11th in job creation to 44th in just two years.
Walker stormed into office in 2011 on the crest of a Tea Party wave and immediately added $117.2 million to the budget deficit with a series of tax cuts that did nothing to spur job creation. He “paid” for these cuts in part with an attack on public workers that he failed to mention in his campaign that he was going to pursue.
The governor and his Republican majorities cut workers’ salaries by about eight percent across the board, eliminated collective-bargaining rights and essentially tied any future wage increases to the rate of inflation.
The growing budget deficit Walker inherited was mostly the result of the financial crisis. Investors enabled by conservative politicians had collaborated to create the worst economic crash since the last time investors and conservative politicians had crashed the economy.
Hans-Olaf Henkel is Professor of Business Economics at the University of Mannheim. Previously he was chairman of IBM Europe, Middle East and Africa and President of the Association of German Industries (1995-2000). He is a leading advocate of a split of the eurozone.
Henkel is also a leading figure in a new political group, “Alternative for Germany”, which is expected to be an official party in time to contest the September general election. Its main plank is the abolishment of the euro. (See here.) On March 4, Deutsche Bank Research published an analysis concerning its prospects. (See here.)
In the following article, Lars Schall revisits a debate over comments Henkel made in 2009 in which he attributed the cause of the sub-prime crisis and subsequent global financial crisis to political “do-gooders” ending the practice of banks in the US “redlining” specific areas, such as slums, often with a specific ethnic population, as no-go zone for home-loans.
You have heard the widespread thesis that no one saw the current financial crisis coming. That thesis is simply wrong. However, it makes sure that those are not seen and heard, who a) did see it coming, who b) could have prevented it, and who c) have the knowledge of how we can get out of the schemozzle we’re in.
A prime example for those contemporaries who say that no one saw the crisis coming is Hans-Olaf Henkel, the former head of the Federation of German Industries. Currently, he is, among other things, Bank of America’s senior advisor in Germany and a regular columnist for Das Handelsblatt, Germany’s most respected financial newspaper. Mr Henkel is in Germany a household name among people who follow economics and politics.
Thus, what Henkel says has some impact on the perception and thinking of the general public in Germany. Or, as he himself explained quite well during a 2009 interview with the German stock market commentator Michael Mross: ”If you don’t know the reason for the crisis, you automatically don’t know the right means to prevent the next one.”
But after the crisis, as the Obama presidency dawned, conservatives decided it had all been the government’s fault. Conservatism has never failed, it has only been failed:
The financial crisis of 2008 and its painful aftermath, which we’re still dealing with, were a huge slap in the face for free-market fundamentalists. Circa 2005, the usual suspects — conservative publications, analysts at right-wing think tanks like the American Enterprise Institute and the Cato Institute, and so on — insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.
Instead of learning from this experience, however, many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems. Every piece of this revisionist history has been refuted in detail. No, the government didn’t force banks to lend to Those People; no, Fannie Mae and Freddie Mac didn’t cause the housing bubble (they were doing relatively little lending during the peak bubble years); no, government-sponsored lenders weren’t responsible for the surge in risky mortgages (private mortgage issuers accounted for the vast majority of the riskiest loans).
But the zombie keeps shambling on — and here’s Mr. Rubio Tuesday night: “This idea — that our problems were caused by a government that was too small — it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies.” Yep, it’s the full zombie.
h/t Ed Kilgore, Washington Monthly
When the Dodd-Frank financial reform law first passed, Senate Republicans refused to confirm a director for the newly-created Consumer Financial Protection Bureau. They promised to block any nominee — regardless of that nominee’s qualifications for the job — unless the Bureau was weakened and made subservient to the same bank regulators who failed to prevent the 2008 financial crisis.
President Obama was thus forced to recess appoint Ohio Attorney General Richard Cordray to be the Bureau’s first director. Now that Obama has renewed Cordray’s nomination, the Senate GOP is again promising to block any nominee unless the Bureau is watered down:
In a letter sent to President Obama on Friday, 43 Republican senators committed to refusing approval of any nominee to head the consumer watchdog until the bureau underwent significant reform. Lawmakers signing on to the letter included Senate Minority Leader Mitch McConnell (R-Ky.) and Sen. Mike Crapo (R-Idaho), the ranking member of the Senate Banking Committee.
Back in the mid-2000s, the U.S. consumer economy was undergoing a serious change. After decades of favoring low prices (even when they promised low quality), consumers began paying more for all sorts of premium features like single-serve packaging and pretty much anything “green” or “organic.” Then came the financial crisis and the drop in consumer demand.
Despite a worse-than-expected holiday season, the Federal Reserve forecast that G.D.P. growth would approach the historic average of about 3 percent in 2013. The economy may be coming back, but the question for many businesses is what the new “normal” looks like. Will shoppers spend as they did in the credit-bubble years? Or has the Great Recession scared them into prolonged stinginess? Early evidence suggests a mix. What is clear is that the big changes are just beginning.
Waste More, Want More
From the 1970s through the 1990s, the dominant retail trend was toward cheap and big: shoppers drove long distances to buy large boxes of everything they needed in bulk. Starting in the last decade, though, this began to change. And the success of products like Tide Pods (premeasured balls of detergent that made Procter & Gamble an estimated $500 million last year) suggest that the era of premium conveniences isn’t going anywhere.
Somewhat counterintuitively, this trend is directly related to the downturn, says John N. Frank, an analyst at Mintel, a market-research firm. Fearful of losing their jobs, millions of workers coped with the crisis by putting in more time at the office — ‘doing at least two people’s jobs,’ Frank says — even if it meant less time to shop for deals. Dollar General saw tremendous growth as a more convenient alternative to Sam’s Club. Duane Reade, now owned by Walgreen, is proving that no block in Manhattan should be without a drugstore that also carries basic grocery items at an upcharge. Frank says he expects that anxious, overtired workers will drive this trend well into this decade, too.
A few months ago, an alternative currency was introduced in the Greek port city of Volos. It was a grass-roots initiative that has since grown into a network of more than 800 members, in a community struggling to afford items in euros during a deepening financial crisis.
The handicrafts stall at Volos central market lies at the end, just past the homemade jams. After perusing what there is on offer, Hara Soldatou picks out a set of decorated candles, delighted with her purchase. “They cost me 24 TEM, which I built up by offering yoga classes,” she says.
Wherever you wander through the market area, one thing you won’t need in your pocket is money.
From jewellery to food, electrical parts to clothes, everything here is on sale through a local alternative currency called TEM.
It works as an exchange system. If you have goods or services to offer, you gain credit, with one euro equivalent to one TEM.
You can then use your “savings” to buy whatever else is being offered through the network, leading to some rather original exchanges of goods.
It’s all reminiscent of an ancient bartering system returning to today’s Greece.
“I can get language classes or computer lessons in return”, says Stavros Ntentos from his stall where he sells children’s underwear.
“It’s a very good idea because we need to make people realise we can all buy and sell something; we don’t only need euros.”
“We have reached the bottom of our lives and we now have to think in a different way,” says Tasos, a vegetable-seller.